DRAFT PAPER

A NOTE ON CONSTRUCTION OF REGIONAL

SOCIAL ACCOUNTING MATRIX WITH NATURAL

RESOURCE ACCOUNTS: LINKING VILLAGE/INDUSTRY
LEVEL DATA TO REGIONAL LEVEL STUDIES

Yoshifumi Usami Osaka Prefecture University

STUDYING VILLAGE ECONOMIES IN INDIA

A COLLOQUIUM ON METHODOLOGY

December 21 to 24, 2008

A NOTE ON CONSTRUCTION OF REGIONAL SOCIAL ACCOUNTING MATRIX
WITH NATURAL RESOURCE ACCOUNTS:
LINKING VILLAGE/INDUSTRY LEVEL DATA TO REGIONAL LEVEL STUDIES

Yoshifumi Usami
College of Life and Environmental Sciences, Osaka Prefecture University
(usami@envi.osakafu-u.ac.jp)

This research note aims at expanding a study area from a village or industry level to a regional level and
proposing to construct a regional social accounting matrix (SAM). A SAM is a matrix presentation of
transactions taken place between various economic agents in an economy. It shows production,
generation and distribution of incomes, consumption expenditure and capital accumulation by various
institutions, and transactions with outside the region. The SAM enables us to analyze not only direct
effect but indirect and induced effects of the exogenous impacts, policy intervention or globalization,
for example. The regional SAM thus will be a supplementary to the village studies.

The idea for proposing regional SAM construction has two distinct aims. One is to analyze the impacts
of globalization on rural economy. Globalization is a complicate phenomenon with far-reaching
influence not only on national economy but also on remote rural areas. One aspect of impact would be
amplified or mitigated by another impact. In addition, inter-industry interactions in a region, inter-region
interactions through trade in commodities, labor migrations, and financial flow, the impacts of
globalization reaches to various groups of households. The induced effect through expenditure links and
financial flow seems leaked out the village to a local market town and then to the rest of Inda, or even
further. There could be a feedback links to the village as well. It is of great importance to study not only
direct and indirect effects, but also induced effects through expenditures. Regrettably, this aspect is not
within the scope of village and industry level studies, because village or industry level studies so far have
focused on direct and indirect effects. More comprehensive studies rather than the specific industry level
with a scope of wider region rather than a village are needed.

The other aim is concerned with environmental problems. Some of the most serious local and global
environmental problems that India is facing are depletion of natural resources, water in particular, and
change in land use patterns leading to degradation of cultivated and forest land. While the government
of India envisaged the ambitious river link projects from the northern water surplus regions to the
southern water shortage regions, equally important is effective utilization of local water and land
resources. Soil degradation caused by over-use of chemical fertilizers and pesticides, and shortage of
organic matters has caused concerns for future growth of crop production. The analysis of interactions
between economic activities and natural resources is keenly needed.

40
With the two aims in mind, this paper proposes a construction of regional social accounting matrix with
natural resource accounts. Since the study has just started, only a rough sketch of framework of regional
SAM will be presented. The following section introduces my recent study on silk industry to illustrate
shortcomings of the industry level studies. Section two briefly explains social accounting matrix and
village SAMs constructed at two different times are compared to show that interactions between a village
and to outside economy expanded and deepened. The village SAM, regrettably, is not able to analyze the
expanding interrelations with outside the village. Section three proposes construction of R-SAM with
natural resource accounts incorporating water, forest and land use accounts to Regional SAM. The last
section concludes the discussion.

(1) Globalization and Industry level StudiesA Case Study on Silk Industry in India

There are quite a few studies on globalization of Indian Economy. Most of them analyze the impacts of
globalization either at the national economy as a whole, at industry level or at village level. These studies,
industry level studies in particular, focus on direct effects or at most indirect effects of globalization, so
that economy-wide interactions through indirect and induced effects are kept outside the scope of the
study.

For an illustrative purpose, let me introduce my recent studies on silk industry in India. Indian silk
industry was benefited from the revision of the Rules of Origin of the US in 1996 which significantly
affected Chinese silk export to the US and EU during the late 1990s. Indian silk fabric export to the US
increased from $120 million in 1995 to $320 million in 2003. As a result, the demand for raw silk
increased, but domestic production and supply of raw silk could not respond. The Gap was filled with
import of raw silk from china and India became the largest raw silk importer (Usami and Urade, 2006).
.
With a large scale import of raw silk, Indian domestic markets of raw silk and cocoon were integrated to
international market (Fujimori, ). The domestic price of raw silk thus declined along with the fall of
international prices from 2001 to 2003, though Indian silk export rapidly expanded during the same
period. The fall of prices of raw silk and cocoon hit silk reeling industry as well as sericulture farms. To
ameliorate the adverse effects, the Government of India implemented the Anti-Dumping duty against
Chinese raw silk in 2003. It was, however, not successful in a sense that Chinese silk industry started
exporting spun silk and silk fabrics (Usami and Urade, 2008).

Inferior quality of Indian raw silk is supposed as one of the reasons for large import of Chinese raw silk.
It is reported that multivoltine raw silk, which accounts for about 90 percent of Indian silk production,
is short in filament whereas Chinese bivoltine raw silk is suitable for warp. With the assistance of JICA,
bivoltine silk worm rearing technology was transferred and bivoltine raw silk production has growing
gradually. It is recently reported that one or two automatic reeling plants were installed for improving
labor productivity.

41
The labor productivity of reeling factories, of which the majority is out-dated cottage basin type, is
supposedly quite low, and its improvement is an urgent need to compete with Chinese counterparts. It is,
however, required to think over the employment situation as well. The automatic multi-end reeling
machines surely replace a large number of workers who have been employed in cottage basin factories.
This will have serious effects on the regional economy, depending on the performance of other
non-farm sectors.

The study also noticed that while raw silk production in India as a whole remains at stagnant level,
change in regional patterns of cocoon production has been taking place. Sericulture has declined in
Karnataka, the largest cocoon and raw silk producer in India, whereas it has grown in Andhra Pradesh.
There is a cobweb of factors, such as growth of urban sectors and government policy, for example,
working behind the shift of cocoon production. This suggests that a regional economic structure has
been changing rapidly.

Regrettably, because the industry level studies, like my own, tackle at direct effects or at most indirect
effects, they are unable to analyze economy-wide effects on the regional society. Some other analytical
tools are needed. The regional social accounting matrix, which is proposed here, is one of powerful tool
for analyzing the economy-wide interactions in a region.

(2) Social Accounting Matrix (SAM)

According to SNA 1993 a social accounting matrix (SAM) is defined as the presentation of SNA
accounts in a matrix which elaborates the linkages between a supply and use table and institutional sector
accounts. The transactions which take place among various agents in an economy are schematically
illustrated in Fig. 1. The production activities, for example, purchases intermediate inputs from the
commodities market and services of factors from the factor market. The output is sold to either the
domestic market or to foreign markets (export). The income thus generated is distributed to factors of
production and then to the households in the form of labor earnings and others. The households earn
factor income from the rest of the world (ROW) as well. Incomes received by households are spent on
purchasing final goods and services, paying income taxes, transferring to other institutions and, then the
balance is saved.

42
Figure-1 Structure of Payment Flow in an Economy

A SAM shows these comprehensive economic flows in a matrix format. The SAM thus incorporates the
interactions among production activities, production factors, various institutions, capital accumulation
and rest of the world in an accounting framework. Each row represents the receipts of the
corresponding agent, and each column represents the expenditures.

A SAM is flexible in terms of size of an economy on which the SAM was constructed and the level of
disaggregation of the account. It can be constructed at the national, state, region levels or at a village
level depending on data availability and questions for which a research is undertaken.
It also allows subdivide accounts according to the purpose of study. The activities account, for example,
can be disaggregated to the three or four digit classification of industries, or aggregated to fewer groups
as well. In order to analyze problems of rural poverty households accounts can be disaggregated to
several groups by income or by type of households in addition to rural and urban classification.

SAMs thus have been applied to various analyses of interrelationships between structural features of an
economy and the distribution of income and expenditure among household groups. In India, B.K.
Pradhan et.al. constructed the SAM for India (1994-95 and 2004-05). At the village level, there are a few
studies such as Subramanian et.al.(1990), and Imai (2007). Bussolo, et.al., (2003) constructed a
inter-regional SAM for India.

43
Here let us take the village SAM for Kanzara to understand the conceptual framework of a village SAM.
The village SAM for Kanzara was constructed based on ICRISAT village survey data. Table-1 shows the
village SAM for Kanzara, Maharashtra, which is in an aggregated form adding up all sub-accounts for
each account of the original disaggregated SAM for Kanzara.

Table-1 Aggregate Village SAM for Kanzara (1984-85)

Rs.1000)
1984-85 Activities Commodities
Factors Household Temple Village _Govt
Capital Maintenancestock change
Rest of IndiaTotal
Activities 2790.8 2790.8
Commodities 1142.3 105.2 1620.7 5.0 0.4 203.0 15.9 135.0 1491.4 4719.0
Factors 542.6 11.3 0.7 2.0 17.8 2.2 489.9 1066.4
Household 1086.0 965.7 86.3 80.4 2218.4
Temple 6.5 6.5
Village _Govt 1.0 0.1 1.7 5.4 8.2
Capital 350.1 0.8 5.8 356.6
Maintenance 10.2 7.8 18.0
stock change 90.7 44.3 135.0
Rest of India 8.7 1732.3 94.1 96.1 135.9 2067.0
Total 2790.8 4719.0 1066.4 2218.4 6.5 8.2 356.6 18.0 135.0 2067.0

Let us briefly look at the economic flows in the village. As mentioned previously, the rows in the SAM
represent the source of income and the columns represent expenditure of income for each account. The
Activities represent production in the village: the column shows purchasing intermediate inputs
(Rs.1142.3 thousand) from the commodities account and the services of production factors (Rs.542.6)
from the factors account. The residuals (supposedly profit) is distributed to the households account. The
row indicates selling total products (Rs.2790.8 thousand) to the commodity accounts. The commodity
row account represents the components of total receipts: intermediate use (Rs.1142.3 thousand) by
production activities, consumption (Rs.1620.7 thousand) by households, investment and maintenance
(Rs.203.0 thousand and Rs.15.9 thousand, respectively), change in stocks (Rs.135.0 thousand) and export
(Rs.1491.4 thousand), while the column account shows the major portion of commoditys supply comes
from production activity (Rs.2790.8 thousand), and imports (Rs.1732.3 thousand) from the rest of the
country.

The row of factor account shows that factor incomes (Rs.542.6 thousand) are generated in production
activities in the village, and earned from the rest of India (ROI, 489.9 thousand) and, the column
indicates how the factor incomes distributed to households and other institutions. The households and
other institutions accounts show the sources of each institutions income and the objects of expenditure,
such as consumption, transfers, interest payments, savings and taxes. Thus, the incomes received by
household (Rs.2218.4 thousand) are spent on purchasing consumer goods (Rs.1620.7 thousand),
transferring to other households (Rs.86.3 thousand) and to the ROI (Rs.96.1 thousand), and saving
(Rs.402.2). The row of saving and investment account (capital, maintenance and stock change, in the
table) shows the source of savings and its column shows these savings are used for investment purposes

44
(Rs.373.9 thousand) and financial outflow from the village to the ROI (Rs.135.9 thousand). The ROI
row account shows payments made by the village to the rest of India, such as transfers, taxes, factor
payments, and payments for purchases from outside the village, and the column, receipt from the ROI.

Since the village is specialized in commercial crops (cotton) production, village economy deeply
depended on the outside economy. Thus more than a half of total product in the village was exported to
the rest of India while total import accounts for 57 percent of total domestic sale (total product + total
import total export). The trade deficit (Rs.240.9 thousand) was met by net factor income (Rs. 395.8
thousand). After spending for investment the balance leaked out as the financial outflow (Rs. 135.9
thousand).

It is well known that a SAM is a snapshot of the structure of an economy at a given time. However, if
two SAMs are constructed with the same definition and methodology, they would be comparable.
Table-2 shows the V-SAM for Kanzara in 2003-04. Since the aggregated SAM is only given and the
method of construction is not mentioned in the paper, we can only assume that the economic structure
in terms of shares could be roughly comparable. When compared with the previous one, it is clear a lot
of change took place during the last two decades. Total product increased by 8.8 times in nominal terms.
Income of rural households also increased, though the rate of growth is considerably lower.

Table-2 Aggregate Village SAM for Kanzara (2003-04)

Rs.1000)
2003-04 Activities Commodities
Factors Household Temple Village _Govt
Capital Maintenance
stock change
Rest of IndiaTotal
Activities 24541.2 24541.2
Commodities10629.4 32.2 8686.0 28.1 11.0 2316.5 385.6 1839.5 18035.2 41963.3
Factors 7863.4 395.9 19.3 14.3 365.7 252.3 1990.0 10900.8
Household 5311.5 6646.8 568.2 5.2 2411.3 14942.9
Temple 96.1 41.4 9.1 146.6
Village _Govt 4.9 22.9 4.7 12.6 45.1
Capital 2860.4 52.6 0.6 2913.6
Maintenance 99.3 489.0 36.8 12.8 637.9
stock change 1829.3 10.2 1839.5
Rest of India 632.8 15560.6 4157.9 1869.0 5.1 1.3 231.4 22458.1
Total 24541.2 41963.3 10900.8 14942.9 146.6 45.1 2913.6 637.9 1839.5 22458.1

A marked change is seen in villages interdependence to the rest of India. Thus the share of export to
total product rose to 74 percent, while total import accounts for 71% of the total sales in the village.
Export increased and now trade surplus is recorded. Factor payment to the rest of India, on the other
hand, becomes much more than factor income from outside the village in this paper. This suggests that
loans for investment and material input increased and, as a result interest payment was swollen. The table
clearly shows that during the last two decades interdependence of the village to outside economy was
expanded and deepened in commodity market as well as in financial market.

45
This is why a regional SAM rather than a village SAM is proposed. When a village economy became
much more open and interdependence between a village and a near-by market town strengthen, indirect
and induced effects of exogenous impacts would not be confined within a village, but leak out the
village and there might be feed-back effect from the outside the village. The major part of benefit of
increase in Bt cotton cultivation would be leaked out in the form of financial outflow. On the other hand,
if non-farm employment increased in the near-by urban area the impact would be feedback to the village
through labor migration or induced effects of a change in consumption expenditure to more fruits and
vegetables, and livestock products. The village SAM is not able to grasp the whole mechanism of
interdependence between a village and market town.

By introducing additional rows and columns for financial assets and liabilities accounts, it is possible to
incorporate financial flows into a SAM. This allows us analyze interdependence of a village economy
with a market town through financial transactions in addition to factor income receipts and payments.

(3) Regional SAM with Natural Resource Accounts

Among the various local and global environmental problems, depletion of natural resources, water in
particular, and change in land use patterns leading to degradation of cultivated and forest land are the
most serious problems in rural India. While it is estimated that the utilizable water resources potential is
1123 billion tons, the total demand for water is anticipated to reach 1021 billion tons by 2025 (Min. of
Water Resources, GOI,1999). It seems that water availability and demand are balanced in India as a
whole, but the regional imbalance is serious. While the Ganga and Brahmaputra basin has surplus water,
southern peninsular river basins are short in supply. Also depletion of groundwater resources is very
acute in north-western and southern regions. Soil degradation caused by over-use of chemical fertilizers
and pesticides, and shortage of organic matters has caused concerns for future growth of crop
production. Indian government envisaged the ambitious river link projects from the northern water
surplus region to the southern water deficient region, equally important is effective (efficient and
equitable) utilization of local water and land resources. Analysis of interactions between economic
activities and natural resources is called for.

In this respect, the regional SAM has another advantage that it allows us to integrate the interactions
between economic activities and the environment. While incorporating the natural resource use by
economic activities, the regional SAM with natural resource accounts will be a powerful tool for
analyzing the extent of depletion of natural resources due to production activities and households
consumption, and its repercussions on economic activities.

Schematically, the interactions between the two spheres are considered as abstraction of natural
resources into economic activities, transactions among economic agents (production, sales / distribution,

46
and consumption), and return of residuals into the environment. It is the National Accounting Matrix
including Environmental Accounts (NAMEA) that combined together the national account matrix in
monetary terms and environmental accounts in physical terms (Haan and Kenung,1996). The SEEA
2003 adopted the similar matrix representation, called the hybrid flow accounts (UN et al.,2003). With
the help of the NAMEA and SEEA 2003, the conceptual framework of our regional SAM with natural
resource accounts will be formulated.

Let us have a brief look at the structure NAMEA. As shown in Figure-2, the NAMEA has in its core
block the national account matrix (NAM) measured in monetary terms. This is the conventional national
accounts in a matrix presentation. The structures of NAM and SAM are basically same with a difference
that the latter focuses more on income distribution. The environmental accounts which measured in
physical terms are shown in outside the core sub-matrix.

Figure-2 Structure of NAMEA

Substances Accounts Environmental

NAM Emission of
Pollutants
Natural
Resources
Land
Use
Themes

<Physical
Substances Accounts Accounts>
Absorption by
Producers <Physical Accounts>

Environmental Themes

Source: Ariyoshi (2006)

The environmental accounts of original NAMEA consist of 1) substance accounts and 2) accounts for
environmental themes showing pressures on local and global environment. The substance accounts are
subdivided into the accounts of pollution emission and, that of natural resources and land use. The
economic activities accounts, for example, indicate on the row the production of goods and services (the
SAM block), and the related emissions of polluting substances. The column shows the intermediate
consumption, consumption of fixed capital and net value added (the SAM block), as well as extraction
of natural resources and waste and wastewater used in pollution abatement activities. The Dutch
NAMEA has natural resource use accounts of coal and petroleum. The NAMEA of Japanese version
made some adjustments to the original NAMEA (Ariyoshi, 2006). Among others, it added the forest and
water resources accounts and land use accounts in the substance accounts of NAMEA.

Now let us discuss how to incorporate natural resources accounts into our regional SAM Since our main

47
purpose is to depict the natural resource use by economic activities in a region, the accounts for
emission of pollutants and the pollution abatement activities, and the accounts for environmental
themes are excluded. Of course, they would be easily incorporated in the regional SAM, if necessary.
Also, it is not intended to construct the comprehensive environmental accounts, the environmental
services provided by natural resources, such as ecosystem input of water, landscape amenity and
biodiversity conservation of forest, are not taken into consideration here. With the Japanese NAMEA as
a reference, a new set of accounts, water, forest and land use, measured in physical terms as well as in
monetary terms are introduced to the conventional regional SAM. Since the study just started, the
following discussion is a rough sketch of conceptual framework of regional SAM with natural resource
accounts.

Water Resources

Water resource accounts comprise of stock and flow accounts in physical terms as well as in monetary
terms. However, since the stock water for rivers is not well defined and information on stock water in
groundwater, reservoirs, lakes and tanks is not easily available, the water asset account is not taken into
account here. Further, the ecosystem inputs, or ecological requirements are not considered here, though
the impacts of change in ecological services downstream would be important for people living there. If
stock water data were available at the regional level, then depletion of water resources would be
calculated while taking the ecological flow also into consideration.

The first step thus is to prepare the water flow accounts. The flow accounts show the water flow from
the environment to the economy, flows within the economy and flows from the economy back to the
environment. More specifically, the water flow accounts measure the supply and use of water by detailed
economic activities and households so that these can be linked directly to the regional SAM. The water
supply and use tables are disaggregated by the natural source of water, i.e., surface water and
groundwater. Note that some economic sectors abstract water from nature for direct use in production
and some abstract water for distribution to other sectors. Once water is abstracted from the
environment and processed by an industry, it is considered as a product, irrigation and drinking water,
for example. In order to show the difference between natural and produced water, we subdivide
economic production into the water producing sector and other economic activities. The water
producing sector could be further subdivided into irrigation sector and other water distribution sector.

In order to record the flow of water in the SAM block, the use of water as a product is measured not
only in physical terms but also in monetary terms. Water supply in monetary units records the major
economic output of water producing sectors, of drinking water, non-drinking water, and irrigation water.
Water use in monetary terms records the use of water by other economic sectors and households. It is
well known that valuing water is not easy. A market price, if any, covers only ordinary production cost

48
and is undervalued by economic subsidy provided by the government. Given that water is undervalued,
yet measuring water in monetary terms would be useful to estimate water rent (economic rent as well as
water services) which accrues to either water producing sectors or water user.

From the discussions above, it is clear that some adjustment and extensions are needed to the
conventional SAM to integrate water resources, as shown in Figure-3. The adjustment is the subdivision
of activities accounts in the SAM block to show explicitly water producing sector. The extension is
introducing a new set of accounts below the SAM block to show water use by activities and institutions.
One is surface water account and the other is groundwater account. Similarly, two columns are
introduced to the right-side of SAM block to record the residuals returned to the environment.

Figure-3 Regional SAM with Water Flow Accounts

Capital (investment)
Commodities* Activities* Factors* Institutions Natural*

Water distribution

SAM Total

Land Use*
Financial*
Government
Agriculture

ROIndia
Household
Others

Others

Others
Water

Water

Water
Labor
A B C D E F G H I J K L M AA AB AC
Commodities* Others 1
Irrigation 2 C2
Water
Others 3 D3 H3 I3
Activities* Agriculture 4 AB4
Water Irrigation 5 B5 AB5
Distribution Others 6 B6 AB6
Others 7
Factors* Others 8
Water 9 C9 D9 E9
Institutions
Household 10 AB10
Government 11 AB11
Capital (savings) 12
Financial* 13
ROIndia 14
SAM total 15
Natural resources* Others 16
River Canal 17 C17 D17 E17 H17 I17
Water Tank 18 C18 D18 E18 H18 I18
Ground water 19 C19 D19 E19 H19 I19
Land Use* 20
Note: The accounts with * are shown in aggregated format.

Water abstraction from the environment is shown by rows 17-19. For example, the direct water
abstraction by agriculture in physical terms from river and aquifer is shown in the cells (C17 and C19),
respectively. The water distributors such as irrigation and water distributors abstract water from river or
aquifer, which are shown in the cells (E17 and E19). Similarly, the direct water abstraction by households
is shown in the cells (H17-H19). The return of residual water is shown in physical terms by the
column AB.

The economic transactions of water as a product are shown in SAM block in monetary terms. The water
distributors sell water to agriculture (irrigation) (B5) and other purposes (B6). The economic activities
use treated (or untreated) water as intermediate input (agriculture C2, and other sectors D3). The cells
(H3 and I3) show final consumption of water by households and the government, respectively. Provided
that water rent were calculated, water rent is recorded in the cells (C9 to E9), some part would be accrue

49
to the distributors and the remaining accrue to users. The balance between the direct abstraction and
residual return is actual water consumption in the region. The water flow account in physical terms is
used to calculate the sector wise actual water use.

Forest resources and Land Use

During the last decade or so forest accounts have been prepared in many countries to shed light on the
problem of forest depletion and assessment of non-timber forest products (NTFP) and environmental
services of forest. Let us take a look at the analytical framework underlying these forest accounts.
According to SEEA 2003 land is classified according to the land cover and land use classifications. In
practice, however, it is not possible to classify land by both ways because usually land use data is only
available. For accounting purpose forest and NTFP are separated from forest land. Forest land is
included in land use accounts which will be discussed later. Forest then is divided into cultivated forest
and non-cultivated (natural) forest. Forest supplies variety of products and services: timer, non-timber
forest products, forest services, such as carbon storage and recreation (Lange, 2004). Wood and
non-wood products are supplied by other wooded land as well.

Forest accounts consist of asset account and flow accounts. Some of the accounts are described in both
physical and monetary terms and some in physical terms only. The forest asset accounts record balance
accounts for stocks of standing timbers. The timber asset account records opening stock, natural growth,
felling, change in classification, revaluation of stock and closing stock. The forest flow accounts include
supply and use tables for detailed forest products by economic activities. Forest products include timber,
NTFP like wild plants, honey, etc., and forest services, like livestock grazing, recreation and tourism, and
carbon storage. Assessing NTFP and forest services allows us to analyze how many non-forestry sectors
benefit from forest ecosystems.

Land is regarded as a production factor and land use accounts shows the actual use of land in the
production and consumption processes in physical terms. A land use by economic activities matrix
allows us to link directly to the regional SAM.

When constructing the regional SAM, it is required to take into account the very close interrelationship
among crop cultivation, livestock husbandry, forestry and households. The interrelationship is
characterized as a substitution relationship among each intermediate input. One example is wood (fuel
wood), fossil fuel and dung fuel, and another is cow dung as manure and chemical fertilizer. Cow dung,
thus, is used as manure for crop production and as fuel for households. That shortage of organic matter
due to fuel use of cow dung is a cause of lower land productivity was noticed since long (Howard, 1924).
Among forest products timer is used for house construction and furnishing as well as making farm
implements. In addition to fossil fuels, such as coal, kerosene and gas, fuel wood is used by rural and
urban households.

50
Kawasaki (2003) is a pioneering work to incorporate this nexus of livestock, forestry, fertilizer and fuel
sectors into the SAM framework and the SAM thus constructed was used for the Computable General
Equilibrium model. To integrate explicitly the interrelationship, he introduced land accounts (cultivated
land, grazing land and forest land) in factors account. He also introduced two accounts for dung fuel and
dung manure in commodities accounts. Regrettably, Kawasaki did not subdivide forestry account into
timber wood and fuel wood.

Figure-4 shows the framework of our regional SAM incorporating forest resources and land use
accounts. In order to represent explicitly the nexus among livestock husbandry, forestry and agriculture,
it is required to adjust the conventional SAM, and the activities, commodities, factors and institution
accounts are subdivided. Forestry account is subdivided into two sub-accounts, timber wood and
firewood. As for commodities, accounts for cow dung, timber, firewood, NTFP and fossil fuels are
separately formed. In addition to labor and capital in the factors accounts, land rent accounts for
cultivated land, grazing land, and forest land are introduced. Like water resources accounting, forest
services are not taken into account here, but if estimation for forest service value were available it would
be recorded as the forest land rent.

Outside the core SAM block, new accounts for cultivated forest and natural forest are introduced to
record the timber flow in physical terms. Thus, the cells (B31-D32) record intermediate input use of
timber wood and fuel wood by activities and the cell (G31-G32) shows final consumption of timber
wood and fuel wood by households. The natural growth of timber stock is recorded in the cells (AA26).
In addition, land use accounts are introduced to show land use by activities and households in physical
terms. Land use is classified into cultivated land, fallow land, forest land, and other land.

51
Figure-4 Regional SAM with Forest and Land Use Accounts
Activities* Natural*

Capital (investment)
Livestock husbandry

SAM Total

Land Use*
Financial
Agriculture

ROIndia
Forestry

Forest
Oters

Water
Commodities* Factors* Institutions

A B C D E F G H I J K AA AB AC
Commodities*
Ag. products Others 1
Livestock Others 2
products Dung manure 3
Dung fuel 4
Log wood 5
Forest products Fuel wood 6
NTFP 7
Others 8
Others Chem fertilizer 9
Fossil fuel 10
Activities*
Agriculture *** 11
Cow buffalo 12
Livestock Drought animal 13
husbandry Sheep Goat 14
Poultry 15
Forestry Log wood 16
Fuel wood 17
18
Others ***
Factors
Labor 19
Capital 20
Land cultivated 21
Land grazing 22
Land forestry 23
Institutions
Household 24
Government 25
Capital (savings) 26 AA26
Financial 27
ROIndia 28
SAM total 29
Natural resources Others 30
Cultivated forest 31 B31 C31 D31 D31 G31
Forest
Natural forest 32 B32 C32 D32 D32 G32
Land Use Agricultural land 33 B33 C33 G33
Forest land 34 C34 D34
Fallow 35 C35 D35
Other Land 36 B36 E36 G36

Note: The accounts shaded are subdivided or newly added accounts..

Concluding Remarks

In order to study the change in economic structure in rural areas due to globalization or government
policies and etc., both industry and village level studies are needed to expand the scope of research.
Industry level studies are liable to be a partial, because effects of change in other sectors are not taken
into accounts. Village level studies are not able to analyze full effects of exogenous shock because the
relationship with local market towns is not treated as endogenous accounts. To expand the scope of the
study, construction of regional social accounts is proposed. If the relationship with a local market town
is explicitly incorporated, and if financial flow is incorporated in the regional SAM it will be a useful tool
for analyzing the change in economic structure in the region.

Taking the recent concerns on environmental problems into consideration, this note further proposes to
incorporate the interactions between economic activities and natural resources to the regional SAM. The

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regional SAM with natural resource accounts will be a powerful analytical tool for depletion and
degradation of natural resources, water and forest, due to economic activities within the region and the
outside, and their repercussions on regional economy as well.

Data availability is a serious constraint as huge consistent data is required for construction of regional
SAM. Since district level data is fragmentary it is not easy task to collect needed information for SAM
construction at the district or NSS region level. In such a case, the mini-region SAM covering several
villages and a local market town, like the study in Mexico undertaken by Yunez-Naude et.al.(2006) would
be a substitute. This is just a starting point, showing a rough idea of regional SAM. Examination of the
accounting framework of SAM and water and forest accounts in detail is remained for future studies.

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